One constant about the real estate business is that it's constantly changing. The house flipping industry has seen that same scenario during the past decade, as it has undergone dramatic changes, but it has grown even more profitable during that time.
According to RealtyTrac, the average gross profit on a flipped home in the second quarter reached $62,000, a 10-year high after the flipping business has been retooling for the past two years.
Let's look at some of those changes that have occurred over the past 10 years and what lessons you can learn to become a successful flipper in this new environment.
With the recovery in the housing market, which in fact is showing a shortage in many communities, locating houses has become a greater challenge for flippers. While you still can find foreclosures and bank-owned properties, these are getting harder to come by and banks are seeking closer to market prices.
If you are not a real estate agent, you need to find one to become your friend in the flipping business. That's because you need quick access to the multi-listing service (MLS) in your community to monitor new homes coming on the market. A real estate agent also will be able to tell you if these properties are owner-occupied sales or estate sales. Sometimes families are willing to accept less for a property if they get a quick cash payment, rather than waiting for a long escrow period.
Another avenue for finding properties are those for sale by owner. These houses can be acquired more cheaply if the owner wants a quick sale, doesn't have to involve a real estate agent and their commission or doesn't really know the market and has the house under-priced.
Having cash in hand also will be important to finding these best-priced houses. RealtyTrac noted the percentage of buyers who are using their own cash as flippers has climbed to nearly 70 percent this year, nearly double what it was 10 years ago. But they also reported a growing interest in private lenders who quickly approve loans, which allows new flippers to enter the market at a competitive level.
Whichever route you take, you can expect to pay more than you did for houses during the housing crisis, but the good news is you can expect to sell the house for more, too.
What also has changed since the housing crisis is the type of house you can buy for a good price. When the foreclosure market was at its peak, you could get houses that were generally in good shape, that needed only cosmetic changes before they could be flipped.
Now, the houses you likely able to acquire at discounted prices are those that are out of date and need some modernization to appeal to current buyers. You'll need to look at opening up the floor plan, adding more expensive amenities, particularly wood or laminate floors and kitchen upgrades such as marble or granite countertops and stainless steel appliances, and a master suite with bathroom.
All of this will require more money and more time, but the payoff in the end is greater as the housing market continues to warm up.
Selling Your House
Of course, the most important part of a successful house flipping business is being able to sell your house at your target price. The good news here is that a tightened housing market also helps when you sell your newly renovated home.
While interest rates remain low, more home buyers are getting into the market, leading to those greater profits RealtyTrac has been reporting.
To get those better prices, you still need to do your research and make sure your house is in a desirable neighborhood and can support the price and renovations you have put into the home.
Contact us to find out how you can get quick approval for your purchase and rehab loans on your potential fix and flip house.
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